Regulatory Investigations: Are You at Risk?

By Brian Francetich
SEC and State Regulators are on the hunt for cases that send a message. They are looking closely for breaches of fiduciary duty, conflicts of interest, lackadaisical or negligent handling of private client information (including cyber-related incidents) and outright fraud. In fact, for the SEC fiscal year ended September 30, 2016, there were a record 868 enforcement actions filed with over $4 billion in disgorgements and penalties. What happens if your firm is targeted by the SEC’s enforcement division? How would you respond and do you have the tools to defend (and fund) against this type of onslaught?

Case Study:

A June 24, 2014 article in the Wall Street Journal titled: Refusing to Buckle to SEC Intimidation by Nelson Obus details his and his RIA firm’s twelve year journey defending an insider trading suit brought against Obus and Wynnefield Capital by the SEC. Over $12MM was spent on defense, the SEC appealed an initial U.S. District Court dismissal and Obus was pressured time and again to settle but continued to fight until a final victory on May 30, 2014. Click here for the complete article.

Yes, this is an extreme example, yet it certainly begs the question regarding how to respond to such an issue. Many E&O policies alone with not respond nor provide defense for this as it is not pertaining to professional services rendered to clients of the RIA. Organizational level coverage, Directors & Officers Liability (D&O), should be considered and if desired, crafted for investigation defense coverage to apply. Keep in mind, each RIA policy is unique and should be reviewed carefully to determine the full scope of coverage.

Golsan Scruggs is an insurance brokerage firm operating throughout the United States specializing in investment advisor E&O errors & omissions insurance (aka professional liability insurance) for RIA registered investment advisors.. As one of the largest insurers of RIA firms in the U.S., we have a dedicated staff that understands the risks of the financial services industry and delivers superior results.  We make the underwriting process painless.